Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/56695 
Year of Publication: 
2011
Series/Report no.: 
SFB 649 Discussion Paper No. 2011-082
Publisher: 
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk, Berlin
Abstract: 
We consider a full equilibrium model in continuous time comprising a finite number of agents and tradable securities.We show that, if the agents' endowments are spanned by the securities and if the agents have entropic utilities, an equilibrium exists and the agents' optimal trading strategies are constant. Affine processes, and the theory of information-based asset pricing are used to model the endogenous asset price dynamics and the terminal payoff. Semi-explicit pricing formulae are obtained and applied to numerically analyze the impact of the agents' risk aversion on the implied volatility of simultaneously-traded European-style options.
Subjects: 
continuous-time equilibrium
CAPM
affine processes
information-based asset pricing
implied volatility
JEL: 
C62
D52
D53
Document Type: 
Working Paper

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